Grant Thornton UK reacts to Autumn Budget

The budget was shaped by a fundamental tension between the need to address immediate fiscal pressures and spending demands, and the goal of delivering a Budget for growth without cutting across previous manifesto commitments, stated Grant Thornton UK Tax head Hazel Platt.

Platt noted that there had been no easy choices for Rachel Reeves.

According to Platt, the budget was made even harder by the political constraints of the manifesto pledges.

Platt added: “The Chancellor announced a patchwork of tax rises including extending the existing freeze on personal tax thresholds by a further three years until 2031, retaining the freeze on employer National Insurance thresholds and restricting National Insurance relief on pension contributions over £2,000 made through salary sacrifice from 2029.

“The silver lining of today’s Budget is that Reeves took the decision to more than double the fiscal headroom to buffer against future shocks – with the hope that she won’t need to come back for more tax rises again this time next year.”

Private Tax Partner Nick Parkinson noted that uncertainty has defined tax policy this year, and the Budget is unlikely to have alleviated those concerns for high-net-worth clients.

He added that, if anything, the increased scrutiny on decision-makers following the Budget may have only heightened their concerns.

Parkinson added: “The Chancellor seems to have left the door open to revisit some of the rumoured policy changes in the future. Today, we did see the freeze in income tax allowances, the 2% increase in income tax on certain dividends, savings and property income and the Council Tax surcharge on properties worth more than £2 million, not all of which one might regard as being a tax shouldered by the wealthiest in society.”

He noted that a welcome development was the new provision allowing spouses to transfer their £1m allowance for assets qualifying for Business Property Relief and Agricultural Property Relief. He explained that this change offers married couples greater flexibility in managing their overall inheritance tax liabilities.

“Importantly, the Chancellor did not announce anything which closes the door to sensible wealth and succession planning which remains a priority for our clients given their lack of confidence in the tax environment,” Parkinson stated.

Grant Thornton UK employment tax director Jonathan Berger noted that pension salary sacrifice had enabled both employees and employers to make National Insurance Contribution (NIC) savings on pension contributions for many years, with employers often sharing these savings to enhance employee pensions.

He explained that, from April 2029, these NIC savings would be capped at £2,000 of contributions. Although there had been concerns that this change would take effect from the next tax year, Berger pointed out that employers and employees would still be able to benefit from the current arrangements until April 2029, providing them with time to prepare for the change.

Berger explained that middle earners, particularly those earning under £50,000, would be especially affected by the changes, as they would pay 8% National Insurance Contributions (NICs) on pension contributions above the new threshold, while higher-rate taxpayers would pay 2%.

He noted that employers would face an even greater impact, with a 15% NIC rate applying to amounts sacrificed over £2,000.

He emphasised that, while the practicalities were important, most employers would be focused on finding the best way to minimise the impact on both their business and employees saving for retirement.

Berger suggested that the change was likely to increase costs for employers who currently benefit from pension salary sacrifice, particularly those who have encouraged higher pension savings.

He warned that it could also lead to significant changes in pension saving behaviours, potentially affecting the success of auto-enrolment.

Berger observed that many employers currently pass on some or all of their NIC savings to employees through enhanced pension contributions, but this approach might need to be reconsidered, which could negatively affect pension saving.

He also advised that employers should consider whether other benefits they provide could help offset the impact on pension contributions.

Speaking on the SMEs and Entrepreneurs, Grant Thornton UK Entrepreneurial and SME Partner Tim Taylor added: “Entrepreneurial and SME businesses are the foundation of the UK economy and have the means to provide the growth the Chancellor is seeking. As outlined in today’s Budget, more than half of new jobs created are done so by scale-up organisations, who continue to call for support at a time when both inflation and energy costs are proving stubbornly high.”

“We welcome the announcement of widened eligibility for enterprise incentives, alongside the UK Government’s call for evidence on how our country’s taxation systems can better support entrepreneurs.”

Taylor noted that, despite recent advancements, the Budget had introduced additional pressures for small businesses nationwide.

He pointed out that the proposed increase in the national minimum wage would impose an extra cost of around £1,500 per full-time employee on business owners, and that, combined with the recent rise in employer’s national insurance, could place significant strain on entrepreneurs who were already facing difficulties.

He also observed that, while the UK remained an attractive destination for those looking to start a business, the full implementation of proposed changes to inheritance tax and tax rates on dividends in the coming years could threaten this favourable position.

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